Final Results
Northgate PLC
05 July 2005
5 July 2005
NORTHGATE PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2005
Northgate plc (the 'Company', the 'Group'), the UK's leading specialist in light
commercial vehicle hire, announces its preliminary results for the year ended 30
April 2005.
• Turnover up 28.9% to £458.3m (2004 - £355.6m)
• Operating profit up 26.2% to £75.7m (2004 - £59.9m*+)
• Profit before tax and goodwill amortisation up 23.8% to £55.6m (2004 - £44.9m*)
• Earnings per share up 17.8% to 59.7p (2004 - 50.7p*)
• Total dividend increased by 13.6% to 20.0p (2004 - 17.6p)
• UK fleet increased by 11.0% to 52,600 vehicles (2004 - 47,400)
• Spanish fleet (Fualsa) increased by 26.7% to 19,000 vehicles (2004 - 15,000)
*As restated for the application of UITF 17 (revised)
+Includes share of joint venture operating profit
Martin Ballinger, Chairman, commented:
'I am pleased to report on these excellent results. In the year, our UK market
grew strongly, with fleet and location increases across the UK. Our subsidiary
company, Fualsa, confirmed our belief in the exceptional opportunity offered by
the vehicle rental market in Spain.
The Company is currently updating its Strategy for Growth and we will be
building on Northgate's past success to ensure that we continue to deliver
progress through 2006 to 2009 and beyond'
Full statement and results attached.
For further information, please contact:
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|Northgate plc | 01325 467558 |
|Steve Smith, Chief Executive | |
|Gerard Murray, Finance Director | |
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|Hogarth Partnership Limited | 020 7357 9477 |
|Andrew Jaques | |
|Barnaby Fry | |
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CHAIRMAN'S STATEMENT
This is the first Annual Report Statement I have written as Chairman of your
Company. I would like first to pay tribute to my predecessor, Michael Waring.
Few could have foreseen the growth of the business achieved during the 20 years
of his leadership. His skills and determination have helped the development of
the Northgate business and in the formulation of its strategies, leaving it well
placed to continue that growth in the future.
I am, therefore, pleased to report on the Company's excellent results in
Michael's last year at Northgate. Turnover for the year increased by 28.9% to
£458.3m (2004 - £355.6m). Profit before tax and goodwill amortisation is up by
£10.7m to £55.6m (2004 - £44.9m as restated). Earnings per share rose 17.8% to
59.7p (2004 - 50.7p as restated). All provide further evidence of Northgate's
progress towards the targets stated in the three year Strategy for Growth,
taking the Company forward to April 2006.
Based on these results and the Board's view of future prospects, the Board has
decided to recommend to shareholders a final dividend of 12p per share. This
will make the total dividend for the year 20p - an increase of 13.6% on last
year and it will be covered three times. The dividend will be payable on 30
September 2005 to those shareholders on the register on 5 August 2005.
Northgate's success is due in large part to its corporate culture. Its structure
of separate businesses enables each local team to focus on the opportunities in
its own area. Local relationships allow a diversified range of business sectors
and geographic areas in the customer base and ensure prompt attention to each
customer's needs on-site. The devolved management structure is complemented by
central corporate functions to monitor and audit Health and Safety standards,
asset management, performance and finance controls. Moreover, the centralised
vehicle purchasing and sales function, national accounts, marketing and sales,
treasury and IT teams provide essential support to those local businesses. The
Northgate culture yields a flexible, robust business model that continues to
lead the field in commercial vehicle solutions.
Northgate's UK business returned to strong growth in the year with its fleet
advancing 11% to 52,600 vehicles (2004 - 47,400). Whilst hire rates remained
competitive, the operational gearing effect of this larger fleet, coupled with
utilisation averaging 90%, ensured the hire operating margin remained healthy at
20.8% (2004 - 20.8% as restated). The residual market for used vehicle sales
remained stable and the UK business was successful in its aim of achieving a
greater proportion (up by 60%) of used vehicle sales through retail and
semi-retail channels. As a result, the operating profit per vehicle sold
improved to £205 (2004 - £189).
Northgate's Spanish vehicle rental business, Fualsa, contributed its first full
year as a wholly owned subsidiary. Its result underscores our belief in the
exceptional opportunity afforded by the vehicle rental market in Spain. With a
fleet growth of 27% to 19,000 vehicles and a profit before tax of £9.9m in the
year, Fualsa is an excellent platform for further expansion in Spain. Fualsa's
network of 15 depot locations at 30 April 2005 has grown further to 17 depots
since the year end and is well on course to expand to 20 by April 2006.
The Company is currently updating its Strategy for Growth to progress through
2006 to 2009 and beyond. The growth of the business in Spain has indicated the
attraction of further acquisitions in due course in mainland Europe. Clearly not
every EU country shares the growth in the sector experienced in Spain and
Northgate will consequently be very selective in its acquisition strategy.
Northgate has also identified further consolidation opportunities in the UK. The
Company is in a strong position to make such acquisitions and has an executive
team with proven skills in integrating them into the Northgate business model.
Strategic planning will also focus on opportunities for organic growth both in
the UK and in Spain, using the proven Northgate business model, adapted for
local cultural realities.
The Company's senior independent director, Ron Williams, has announced that he
is to retire in September, being over 70 years of age and with a length of
service of over nine years. He has been a great support to Michael Waring in the
development of your Company and he has been invaluable to me, the incoming
Chairman. The Board will miss him greatly. We were joined in April by Tom Brown,
a very experienced public company director, whose skills complement those of
other Board members. As the other 'new boy' I am very pleased to have joined the
Northgate team. The staff and management at local and corporate levels have
worked very hard to achieve these results, within the vision and leadership of
the senior executives. The Board itself, executives and non-executives, have a
blend of skills and experience that, I believe, will ensure Northgate will
continue to deliver. It is a privilege to be part of that team.
Since the end of the year we have experienced a weaker vehicle residual market
in the UK than in the prior financial year. In Spain, meanwhile, our fleet
growth rates are higher than those planned.
Despite the softer residual market and perceived weaknesses in the UK economy,
the Board remains of the opinion that we should achieve further progress towards
our planned objectives in both the UK and Spain during the forthcoming year.
Martin Ballinger
Chairman
OPERATIONAL REVIEW
Three Year Strategy for Growth
We are now reporting on the second year of our three year Strategy for Growth
that was announced in July 2003. The strategy was based on achieving the
following targets by April 2006:
•Fleet size of 60,000 in the UK and 18,000 in Spain;
•Network of 100 locations in the UK and 20 in Spain;
•100% ownership of Fualsa; and
•An established portfolio of non-rental products.
In the summer of 2003 very low levels of interest rates and inflation combined
to give conditions that resulted in lower than expected fleet growth in the UK.
Since September 2003 fleet growth has been more in line with our expectations
with growth of 11% in the year to April 2005. We do not, however, expect to make
up the shortfall in fleet growth which arose in 2003 and as such now anticipate
having a UK fleet below our original target of 60,000 vehicles in April 2006.
The fleet growth in Fualsa, our Spanish subsidiary, has, however, exceeded our
expectations such that the closing fleet at April 2005 of 19,000 vehicles
already exceeds the target for April 2006 of 18,000 vehicles. Through the
successful implementation of our strategy we were seeking to achieve annual
double-digit earnings per share growth in each year of the plan. An increase in
earnings per share of 22.9% in the first year of the plan, followed by a further
increase of 17.8% in the year to 30 April 2005 leaves us well placed to achieve
that objective.
Review of Current Year
United Kingdom and Republic of Ireland
The first half of our financial year usually represents the strongest period of
fleet growth and utilisation for the UK since the second half is impacted by a
significant number of vehicle returns in December and January as construction
and distribution sector customers adjust their vehicle requirements in line with
holiday periods and seasonal demand. The year that we are reporting on is a good
example of this cycle with 11% fleet growth for the year as a whole being
achieved but with 9.7% of this growth being in the first half of the financial
year and 1.3 % in the second.
Depot Network
As at 30 April 2005 we operated from 36 primary and 40 branch locations. We have
added new locations in Wakefield, Kidderminster and Worcester since 1 May 2004 -
the latter two being as a result of acquiring Foley Self Drive Limited on 1
August 2004. Since the year end we have opened a new branch at Keighley and
further branch openings at Chelmsford, Erith (Kent) and Hove are scheduled for
the next few weeks. These new branches will bring our network to a total of 80
locations, 36 primary and 44 branches.
As highlighted in previous years we will take the appropriate opportunities to
consolidate businesses where we feel this will lead to efficiencies without
detracting from customer choice and service. During the year Daman Vehicle
Rental Limited, which was acquired in April 2004, was merged with Maincrest
Vehicle Hire Limited in the North West of England.
One of the features of our growth over the past six years has been the
achievement of our planned level of fleet growth through fewer locations than
was originally envisaged as a result of the average fleet size per location
being greater than expected. This enhances the operating margin of the UK since
fixed costs are spread over a larger fleet. Some depots are, however,
constrained from taking advantage of this operational gearing due to the
physical aspects of their location. We, therefore, have plans to relocate four
primary locations to larger depots during the next financial year, thus
increasing the capacity of the network.
Vehicle Fleet
As highlighted above the historic pattern of fleet growth for the UK has been
one whereby there has been a stronger first half to the financial year than the
second half. This year is no exception with growth of 4,600 vehicles from May to
October 2004 of which 850 vehicles were as a result of the acquisition of Foley
Self Drive Limited on 1 August 2004. A further 1.3% growth in the fleet was
achieved in the second half of the financial year producing a closing fleet of
52,600 vehicles (2004 - 47,400).
Utilisation and Hire Rates
Utilisation, which averaged 90% (2004 - 89%) for the year, remains the key
management tool within the business.
As we outlined last July, our three year Strategy for Growth does not envisage
any material improvement in hire rates, with increased profitability being
driven in the main by growth in the fleet and cost efficiencies.
Our interim report mentioned that hire rates had softened slightly both as a
result of localised competitor activity and our focus on fleet growth. With
regards to fleet growth, we continue to aim to win selected business from
contract hire companies. Since this business tends to be lower mileage and
longer term, contract hire companies generally operate at the lower end of our
hire rate range. This new business has, therefore, contributed to a slightly
reduced average hire rate over the year but has improved profitability as a
result of operational gearing.
Used Vehicle Sales
We sold 17,700 vehicles (2004 - 18,700) during the year and at the same time
improved the operating profit per vehicle sold to £205 (2004 - £189). This
improvement in margin is mainly driven by the sales mix since the market has
remained reasonably stable over both years. We have actively sought to increase
the proportion of vehicles sold through retail and semi-retail sales channels
since such disposals attract better margins. For the year ended April 2004 we
saw 6% of our disposals go through a refurbishment process into the semi-retail
or retail channels, whereas for the year to April 2005 this has been increased
to over 10%. One of our objectives is to continue to increase this percentage
over the next couple of years to around 15% of the Group's UK disposals. In
addition to our Carnaby and Walsall remarketing centres we sell vehicles from
three other dedicated sales locations in the UK - Darlington, Snodland in Kent
and Banbury, as well as direct from selected hire locations.
Non-rental products
Although not the main focus of our business, we continue to build on the
portfolio of products that we offer customers as ancillary services to our
rental product. In particular, we now have over 1,900 (2004 - 1,400) tracking
units installed on vehicles in our fleet.
Fualsa (Spain)
This is the first year that Fualsa has been included as a subsidiary of the
Group following the exercise of options to acquire the remaining equity of
Fualsa on 3 May 2004. It has been another excellent year of progress with fleet
growth of 27% and a profit before tax of £9.9m. During the year steps have been
taken to strengthen the management team with the appointment of a Commercial
Director and an Operations Director. We believe we have a strong and committed
team capable of taking advantage of the tremendous opportunity that exists in
Spain.
Depot Network
The depot network as at 30 April 2005 comprised 15 locations as a result of
Murcia, Cadiz, Badojoz and Alicante opening during the financial year. Since the
year end, depots at Leon and Cordoba have opened bringing the total number of
locations to 17, well on track to achieve the objective of 20 locations set out
in the three year Strategy for Growth.
Vehicle Fleet
Fleet growth during the year was 27% producing a closing fleet of 19,000
vehicles (2004 - 15,000). This growth was evenly spread between the first and
second half of the financial year since Spain does not have the same seasonality
of demand as the UK. The industrial sectors contributing to this growth continue
to be in line with our existing customer profile with a bias towards the
construction sector. With the appointment of the Commercial Director and the
resultant marketing activity into other sectors, we are aiming to move to a more
diversified customer base over the medium term.
Utilisation and Hire Rates
The overall utilisation rate improved to 89% (2004 - 88%) despite being held
back slightly by lower rates of utilisation as the network continues to expand.
Of the 17 depots operated by Fualsa, nine have been opened during the last two
years.
Hire rates in Spain have been increasing at a modest rate of around 1% per annum
for the last couple of years. A large proportion of this increase is, however,
funding increases in the capital cost of the fleet where price increases for new
vehicles generally exceed the 1% hire rate improvement.
Current Trading and Outlook
Since our trading update on 3 May 2005, we have experienced a weaker vehicle
residual market in the UK than that experienced in the last financial year. As a
consequence, we currently expect to achieve a lower operating profit per unit
compared to the £205 per unit achieved in the financial year to 30 April 2005.
We do, however, expect to achieve operating profits on disposal within our
target range of between plus or minus £100 per unit.
Fualsa continues to achieve fleet growth rates higher than those planned.
We remain of the opinion that we should make further progress during the
financial year towards the objectives communicated in our three year Strategy
for Growth.
FINANCIAL REVIEW
Financial Reporting
Sales, Margins and Return on Capital
Group turnover increased by 28.9% to £458.3m (2004 - £355.6m) as a result of an
increase in UK turnover of 8.3% and the first time inclusion of Fualsa's
turnover that contributed £73.0m.
United Kingdom & Republic of Ireland
The composition of the Group's UK turnover and operating profit as between hire
activities and vehicle sales is set out below:
2005 2004
£000 As restated
£000
Turnover
Hire 283,414 250,747
Used vehicle sales 101,810 104,877
-------- ----------
385,224 355,624
======== ==========
Operating profit
Hire 58,968 52,143
Used vehicle sales 3,632 3,533
Goodwill amortisation (435) (71)
-------- ----------
UK Operating profit 62,165 55,605
======== ==========
Operating margins (excluding goodwill)
UK overall 16.3% 15.7%
Hire 20.8% 20.8%
Used vehicle sales 3.6% 3.4%
The UK's overall operating margin increased to 16.3% (2004 - 15.7%) mainly as a
result of hire representing a larger proportion of total operating profit than
in the prior year. UK hire turnover increased by 13%, reflecting increases in
the closing and average UK rental fleet of 11% and 12% respectively and
generated the same operating margin of 20.8% (2004 - 20.8%) as the prior year.
The operating profit generated from used vehicle sales has increased by £0.1m
representing an operating profit per vehicle sold of £205 (2004 - £189). The
number of vehicles disposed of during the year was in line with expectations at
a similar level to the prior year at 17,700 vehicles (2004 - 18,700).
Fualsa
This is the first financial year that Fualsa has been reported within the
Group's results as a wholly owned subsidiary. The composition of Fualsa's
turnover and operating profit as between hire activities and vehicle sales is
set out below:
Subsidiary Subsidiary Joint venture
(100%) (100%) (40%)
2005 2004 2004
£000 £000 £000
Turnover
Hire 55,968 43,492 17,397
Used vehicle sales 17,075 15,160 6,064
--------- --------- --------
73,043 58,652 23,461
========= ========= ========
Operating profit
Hire 13,170 8,835 3,534
Used vehicle sales 1,027 2,610 1,044
Goodwill amortisation* (681) - (236)
--------- --------- --------
Fualsa Operating profit 13,516 11,445 4,342
========= ========= ========
Operating margins (excluding goodwill)
Fualsa overall 19.4% 19.5% 19.5%
Hire 23.5% 20.3% 20.3%
Used vehicle sales 6.0% 17.2% 17.2%
*Goodwill amortisation arises on consolidation of Fualsa in the current year and
accounting for Fualsa as a joint venture in the prior year.
Fualsa's hire turnover increased by 28.7%, in line with the rental fleet
increase of 27%. Hire margins have improved to 23.5% (2004 - 20.3%), reflecting
fleet growth that has generated operational gearing benefits. This is despite a
continued investment programme in new locations throughout Spain, with four new
locations opening during the financial year. The overall operating margin of
19.4% (2004 - 19.5%) is similar to the prior year even though 2004 had been
enhanced by £1.75m of non-recurring profits on vehicle disposals of which the
Group's share was estimated to be £0.7m for the year.
Group
Group return on capital employed, calculated as Group operating profit divided
by average capital employed (being shareholders' funds plus net debt), is 14.2%
(2004 - 13.9%).
Group return on equity, calculated as profit after tax divided by average
shareholders' funds, is 19.0% (2004 - 18.3%).
Prior year adjustments
Prior year adjustments have been made to reflect accounting policy changes
following the adoption of Urgent Issues Task Force Abstract ('UITF') 38 and
UITF17 (revised), both with effect from 1 May 2004.
UITF38 is in respect of investments in own shares. The impact of this change is
to reduce both fixed asset investments and shareholders' funds by £1,330,000 at
30 April 2004. There is no impact on the consolidated profit and loss account
for either year.
UITF17 (revised) is in respect of shares granted to employees. The impact of
this change is to increase administrative expenses and reduce profit after
taxation by £191,000 in the current year and by £141,000 in the prior year.
Within the consolidated cash flow statement, the Group operating profit is
reduced by the same amounts for the respective years but there is no effect on
the net cash inflow from operating activities in either year. There is no change
to the profit and loss reserve in either year.
Taxation
The Group's UK operations have a total tax charge of 31% (2004 - 31%) which is
slightly higher than the standard rate of 30% due to disallowable expenditure
incurred within the business.
The Fualsa tax rate of 20% (2004 - 12%) is below the standard Spanish tax rate
of 35% because of tax concessions based on vehicle purchase reliefs that are
available to the business. As was outlined last year it remains the case that as
long as these tax concessions are available it is likely that the tax rate for
Fualsa will remain below the standard rate. The tax rate for future years is
anticipated to remain in the range of 20% to 30% of profit before tax rather
than the very low rate of 2004.
Dividend
The Directors recommend a final dividend of 12.0p per share (2004 - 10.6p)
giving a total for the year of 20.0p (2004 - 17.6p), an increase of 13.6%. The
dividend is covered three times (2004 - 2.84 times).
Earnings per Share
Earnings per share increased by 17.8% to 59.7p (2004 - 50.7p as restated),
reflecting the increase in profit after tax of 23% and the full year effect of
3.04m new shares issued as a result of a 5% Cash Placing on 14 January 2004.
Basic earnings per share have been calculated in accordance with FRS14. The
weighted average number of shares in issue during the year has been amended to
exclude those Ordinary shares held by Walbrook Trustees (Guernsey) Limited and
Capita IRG Trustees Limited for the Company's various share schemes until such
time as they rank for dividend.
Investments
On 3 May 2004 the Company exercised its option to acquire a further 40% of the
equity of Fualsa for the maximum consideration of £15.1m. On the same date the
Company also exercised its option to acquire the final 20% of Fualsa's share
capital. The consideration for this exercise is, however, deferred until 2006
and will be dependent on the profit after tax of Fualsa for the calendar years
2004 and 2005. The maximum amount of deferred consideration payable under the
terms of the Share Purchase Agreement is €14.9m. This amount has been used to
calculate the cost of the investment in Fualsa and the resultant goodwill. In
prior years this investment has been treated as a joint venture within the
Group's accounts but with effect from May 2004 it has been accounted for as a
subsidiary undertaking of the Group.
On 1 August 2004 the Group acquired 100% of Foley Self Drive Limited, a UK
vehicle hire operation based in the West Midlands, for a total cash
consideration (including the bank overdraft acquired) of £4.4m.
Ordinary shares of the Company have been acquired in the open market by Walbrook
Trustees (Guernsey) Limited and Capita IRG Trustees Limited in order to satisfy
the Company's obligations under its various share schemes. These shares are
included within the Group's balance sheet within the own shares held reserve.
Goodwill
The Group amortises goodwill acquired over its useful life up to a maximum of 20
years. The goodwill that has been paid for the initial 40% equity in Fualsa and
the goodwill arising following the exercise of the options over the remaining
share capital of Fualsa on 3 May 2004 is being amortised over 20 years from the
date of the initial investment in July 2002. This gives rise to a goodwill
amortisation charge in the year of £0.7m relating to Fualsa.
Further goodwill amortisation of £0.4m was charged to the profit and loss
account relating to UK businesses.
Capital Structure
As at 30 April 2005 the Group's total gearing increased to 203% (2004 - 137%).
The prior year comparative for gearing has been amended from 132% to reflect our
decision that the gearing ratio going forward will be calculated as net debt
(including cash balances) as a percentage of shareholders' funds but after the
deduction of goodwill. The net cash balance taken into account in calculating
the gearing ratios for this year is £41.4m (2004 - £46.2m).
The significant increase in gearing is in line with our expectations and is
mainly due to the first time consolidation of Fualsa's balance sheet and the
funding of fleet growth in the UK and Spain of 11% and 27% respectively during
the financial year.
Treasury
Cash Flows
The Group's net debt increased by 64% to £410.4m (2004 - £249.8m) reflecting the
consolidation of Fualsa and the funding of fleet growth in the UK and Spain.
Gross cash generation as reflected by EBITDA* increased to £205.1m (2004 -
£154.2m). The Group funded the purchase of 22,600 new vehicles in the UK and
7,700 new vehicles in Fualsa for a total cash outflow of £274.5m. The sale of
17,700 UK vehicles and 3,700 Fualsa vehicles generated a cash inflow of £113.1m.
The Group paid cash of £15.1m following the exercise of its option to acquire a
further 40% in Fualsa on 3 May 2004. The option over the remaining 20% of
Fualsa's equity, whilst exercised, has not yet given rise to a cash outflow.
This deferred consideration of a maximum of €14.9m is classified as debt in the
Group's balance sheet but is not expected to be paid until 2006. The acquisition
of Foley Self Drive Limited gave rise to a £4.4m cash outflow.
*EBITDA - Earnings before interest, taxation, depreciation and amortisation.
Interest Costs
Following the consolidation of Fualsa and the subsequent increase in net debt,
the Group's net interest costs increased by 38.2% to £21.2m (2004 - £15.4m). The
percentage increase in interest costs is significantly lower than the
corresponding percentage increase in net debt because the cost of debt in Fualsa
is based on EURIBOR whereas the UK debt is based on the higher cost LIBOR.
Interest cover has decreased to 3.6 times (2004 - 3.9 times) as a result of UK
base rates being higher in the financial year compared to the prior year.
Strategy
The Group's financing strategy has been approved by the Board. This strategy is
to use medium and long-term debt to finance the Group's vehicle fleet and other
capital expenditure. Working capital is funded by internally generated funds and
an overdraft facility. The Group's interest rate exposure is managed by a series
of treasury contracts as described below.
Treasury Management
Each of the Group's operations is responsible for its own day-to-day cash
management. The funding arrangements of the Group with banks are negotiated and
monitored centrally. On 10 January 2005 the Group entered into a series of
unsecured, revolving, bilateral facilities with major UK and European banks to
provide an aggregate Group facility of £565m over one, three and five years.
These new facilities have replaced the bank and asset finance facilities that
previously existed for the UK. They are also being used to gradually replace
debt facilities in Fualsa within the next two years. All funds generated by the
Group's operations are controlled by a central treasury function.
Liquidity
The Group's aggregate finance facilities, including existing Fualsa loan
facilities, total £672m compared to net debt of £410.4m. As described above, the
core of these arrangements relate to the £565m unsecured facilities with the
following terms:
-----------------------------------
| Term | Amount (£m)|
| | |
| Within one year | 113 |
| Within three years | 226 |
| Five years | 226 |
|---------------------------------|
| Total | 565 |
-----------------------------------
Interest Rate Management
The Group has variable rate interest agreements for all of its UK borrowings.
Historically, it has sought to manage this risk by having in place a number of
financial instruments covering 30% to 40% of its borrowings at any time. Some of
the earlier financial instruments are at levels 2% to 4% above prevailing base
rates and as a consequence the Group increased this coverage by entering into
additional interest rate derivatives in May and June 2003. Five-year swaps to
cover £45m of debt at an average rate of 3.97% were contracted for as were
five-year interest rate collars covering £55m of debt with a range of 3.15% to
5.5%. Since the year end, the Group has entered into a number of Euro swaps,
with a minimum term of three years, to cover €150m of debt with an average swap
rate of 2.27%.
Based on the Group's closing net debt position at 30 April 2005 of £410.4m
(represented by Sterling debt of £235.2m and Euro debt of £175.2m), a 1%
increase in LIBOR and EURIBOR would generate an additional £4.1m per annum of
interest costs if financial instruments were not in place. The table below
indicates the additional annual funding costs to the Group at this level of debt
following increases in LIBOR and EURIBOR for a range between 1% to 3% after
applying the benefits of the Group's financial instruments, including those put
in place since 30 April 2005:
-----------------------------------------------------
| Increase in | Additional interest costs |
| interest rate | Sterling debt | Euro debt | Total |
|---------------------------------------------------|
| 1% | £1.2m | £0.9m | £2.1m |
| 2% | £2.1m | £1.6m | £3.7m |
| 3% | £2.5m | £2.3m | £4.8m |
-----------------------------------------------------
International Financial Reporting Standards
Under European Union legislation, all listed companies will be required to
report under International Financial Reporting Standards ('IFRS') for accounting
periods commencing on or after 1 January 2005. The first annual report and
accounts for the Group prepared under IFRS will be for the year ended 30 April
2006. At that time comparative information will be restated on the same basis.
Interim results for the year to 30 April 2006 will also be prepared on an IFRS
basis.
During the last financial year, work has been ongoing with regard to the first
time adoption of IFRS. The restatement of the opening balance sheet will be
completed in 2005. While the exact financial impact of the changes in Group
accounting policies as a result of IFRS is still being assessed and has not yet
been finalised, the following key areas of difference have been identified:
•accounting for options and other share-based payments will require a
charge against profit on a different basis.
•the treatment of goodwill, whereby existing goodwill and goodwill on
future acquisitions will no longer be amortised. Future annual impairment
reviews of goodwill could result in periodic charges against profit.
•recognition of intangibles arising on acquisition and amortisation of
these assets.
•accounting for derivative financial instruments may cause some volatility
of earnings, although the Group's financial instruments are restricted to
managing some of the Group's currency and interest rate risks.
•the Group will no longer classify the proceeds from vehicle disposals as
part of its revenue.
•no provision for final dividends payable will be made until approved at a
general meeting.
Whilst the Group anticipates currently that these will be the major adjustments
which arise on transition to IFRS, the Group's convergence project is ongoing
and IFRS, along with associated interpretations, continues to be refined and
developed. The Group has established a project timetable to ensure the
requirements under IFRS will be met and adopted in its interim results for the
year to 30 April 2006.
Consolidated Profit and Loss Account
FOR THE YEAR ENDED 30 APRIL 2005
Before goodwill Goodwill Total Total
amortisation amortisation 2005 2004
2005 2005 As restated
Notes £000 £000 £000 £000
Turnover
- continuing operations 380,486 - 380,486 355,624
- acquisitions 77,781 - 77,781 -
- joint venture - - - 23,461
--------- -------- --------- --------
Turnover : Group and
share of joint venture 458,267 - 458,267 379,085
Less : share of joint
venture's turnover - - - (23,461)
--------- -------- --------- --------
Group turnover 1 458,267 - 458,267 355,624
========= ======== ========= ========
Cost of sales
- continuing operations (277,376) - (277,376) (261,255)
- acquisitions (56,537) - (56,537) -
--------- -------- --------- --------
Total cost of sales (333,913) - (333,913) (261,255)
--------- -------- --------- --------
Gross profit
- continuing operations 103,110 - 103,110 94,369
- acquisitions 21,244 - 21,244 -
--------- -------- --------- --------
Total gross profit 124,354 - 124,354 94,369
Administrative
expenses
- continuing operations (40,471) - (40,471) (38,693)
- acquisitions (7,086) - (7,086) -
- goodwill amortisation - (1,116) (1,116) (71)
--------- -------- --------- --------
Total administrative
expenses (47,557) (1,116) (48,673) (38,764)
Group operating
profit --------- -------- --------- --------
- continuing operations 62,639 (206) 62,433 55,605
- acquisitions 14,158 (910) 13,248 -
--------- -------- --------- --------
Total operating profit 1 76,797 (1,116) 75,681 55,605
--------- -------- --------- --------
Share of joint
venture's operating
profit - - - 4,578
Amortisation of
goodwill on joint
venture investment - - - (236)
--------- -------- --------- --------
Profit on ordinary
activities before
interest
and taxation 76,797 (1,116) 75,681 59,947
Interest payable, net (21,224) - (21,224) (15,355)
--------- -------- --------- --------
Profit on ordinary
activities before
taxation 55,573 (1,116) 54,457 44,592
--------- --------
Tax on profit on
ordinary activities (15,963) (13,303)
--------- --------
Profit for the
financial year 38,494 31,289
Dividends (12,837) (11,064)
--------- --------
Profit transferred to
reserves 25,657 20,225
========= ========
Earnings per Ordinary
share - basic 2 59.7p 50.7p
Diluted earnings per
Ordinary share 2 59.1p 50.6p
Dividends per Ordinary
share 20.0p 17.6p
Consolidated Balance Sheet
30 APRIL 2005
2005 2004
As
restated
Notes £000 £000
Fixed assets
Intangible assets 14,110 1,981
Tangible assets
Vehicles for hire 531,843 379,346
Other fixed assets 37,947 23,342
Investments - -
-------- --------
583,900 404,669
-------- --------
Investment in joint venture
-------- --------
Share of gross assets - 50,389
Share of gross liabilities - (40,215)
Goodwill on investment less amortisation - 4,293
-------- --------
- 14,467
-------- --------
Total fixed assets 583,900 419,136
-------- --------
Current assets
Stocks 18,160 15,285
Debtors 92,841 56,382
Cash at bank and in hand 41,375 46,160
-------- --------
152,376 117,827
-------- --------
Creditors: amounts falling due within one
year 107,284 133,756
-------- --------
Net current assets (liabilities) 45,092 (15,929)
-------- --------
Total assets less current liabilities 628,992 403,207
Creditors: amounts falling due after more
than
one year 403,319 208,079
Provisions for liabilities and charges 9,424 6,821
-------- --------
216,249 188,307
======== ========
Capital and reserves
Called up share capital 3,709 3,702
Share premium account 62,544 61,829
Revaluation reserve 1,054 23
Merger reserve 4,721 4,721
Own shares held 3 (2,471) (1,330)
Profit and loss account 146,692 119,362
-------- --------
Shareholders' funds 6 216,249 188,307
======== ========
Attributable to equity shareholders 215,749 187,807
Attributable to non-equity shareholders 500 500
-------- --------
216,249 188,307
======== ========
Consolidated Cash Flow Statement
FOR THE YEAR ENDED 30 APRIL 2005
2005 2004
As
restated
Notes £000 £000
Net cash inflow from operating
activities 5 192,108 157,203
Returns on investments and servicing
of finance (20,691) (14,679)
Taxation (15,241) (11,279)
Capital expenditure and financial
investment
Purchase of vehicles for hire (274,517) (215,129)
Sale of vehicles for hire 113,133 106,771
Other items, net (7,254) (4,333)
--------- ---------
Net cash outflow from capital
expenditure
and financial investment (168,638) (112,691)
--------- ---------
Acquisitions
Acquisitions of subsidiary
undertakings 4 (19,353) (1,092)
Equity dividends paid (11,874) (11,005)
--------- ---------
Cash (outflow) inflow before use of
liquid
resources and financing (43,689) 6,457
Management of liquid resources
Cash placed on deposit (21) (205)
Financing
Issue of Ordinary shares (net of
expenses) 722 16,351
Purchase of investments (net)
- purchase of own shares 3 (1,141) (1,081)
Increase in borrowings 221,166 93,833
Capital element of vehicle loans, hire
purchase and finance lease payments (279,243) (263,310)
Cash inflow from vehicle loans, hire
purchase and finance lease agreements 93,663 169,577
--------- ---------
Net cash inflow from financing 35,167 15,370
--------- ---------
(Decrease) increase in cash for the
year (8,543) 21,622
========= =========
Reconciliation of Net Cash Flow to Movement in Net Debt
FOR THE YEAR ENDED 30 APRIL 2005
2005 2004
Notes £000 £000
(Decrease) increase in cash for
the year (8,543) 21,622
Financing
Increase in borrowings (221,166) (93,833)
Capital element of vehicle loans,
hire purchase and finance lease
payments 279,243 263,310
Cash inflow from vehicle loans,
hire purchase and finance lease
agreements (93,663) (169,577)
Cash placed on deposit 21 205
------- --------
Change in net debt resulting from
cash flows (44,108) 21,727
Vehicle loans, hire purchase and
finance lease agreements acquired
with subsidiary undertakings (66,829) (3,271)
Other net debt acquired with
subsidiary undertakings (27,144) -
New vehicle loans and hire
purchase agreements (15,083) -
Deferred consideration in respect
of Fualsa 4 (9,548) -
Foreign exchange differences 2,184 96
------- --------
Movement in net debt for the year (160,528) 18,552
Opening net debt (249,826) (268,378)
------- --------
Closing net debt (410,354) (249,826)
======= =======
Consolidated Statement of Total Recognised Gains and Losses
FOR THE YEAR ENDED 30 APRIL 2005
2005 2004
As restated
Notes £000 £000
Profit for the financial year 38,494 31,289
Revaluation of land and buildings 4 1,031 -
Foreign exchange differences 1,482 (290)
Share options adjustment under
UITF17 (revised) 3 191 141
------- --------
Total recognised gains and losses
for the financial year 41,198 31,140
======= ========
Notes
1. Segmental analysis
The Directors consider that the only material class of business is
that of vehicle hire. As such, the only segmental analysis provided
is by geographical area.
2005 2004
£000 £000
United Kingdom and Republic of Ireland 385,224 355,624
Spain 73,043 -
------- --------
------- --------
Total turnover 458,267 355,624
======= ========
United Kingdom and Republic of Ireland 62,165 55,605
Spain 13,516 -
------- --------
Total operating profit 75,681 55,605
======= ========
United Kingdom and Republic of Ireland 44,598 41,536
Spain 9,859 3,056
------- --------
Total profit before taxation 54,457 44,592
======= ========
United Kingdom and Republic of Ireland 192,373 173,840
Spain 23,876 14,467
------- --------
Total net assets 216,249 188,307
======= ========
2. Earnings per Ordinary share
The calculation of basic earnings per Ordinary share in respect of
the year ended 30 April 2005 is based on the profit attributable to
equity shareholders of £38,469,000 (2004 - £31,264,000 as restated)
and the weighted average of 64,443,741 (2004 - 61,647,279) Ordinary
shares in issue (excluding those shares held by employee trusts in
connection with the Group's various share schemes).
Diluted earnings per Ordinary share have been calculated on the
basis of earnings described above and assume that 465,690 shares
(2004 - nil), remaining exercisable under the Group's various share
schemes, had been fully exercised at the commencement of the
relevant period, such that the weighted average number of shares is
65,064,599 (2004 - 61,817,783), including 155,168 shares (2004 -
170,504) held by employee trusts in connection with the Group's
various share schemes.
3. Prior year adjustments
Investments in own shares
On 1 May 2004, the Group changed its accounting policy in respect of
investments in its own shares, in accordance with Urgent Issues Task
Force Abstract 38. A prior year adjustment has been made to reflect
this change in accounting policy. The impact of this change is to
reduce both fixed asset investments and shareholders' funds by
£1,330,000 at 30 April 2004. The change in accounting policy gives
rise to an own shares held reserve. This represents shares held by
employee trusts in order to meet commitments under the Group's
various share schemes. The impact of the change in accounting policy
in the current year is to decrease fixed asset investments by
£1,141,000 and to increase the own shares held reserve by the same
amount. Within the consolidated cash flow statement, the change in
accounting policy has caused a reduction in the cash outflow from
capital expenditure and financial investment and a reduction in the
net cash inflow from financing of the same amount. This amount is
£1,081,000 for the year ended 30 April 2004 and £1,141,000 for the
year ended 30 April 2005. There is no impact on the consolidated
profit and loss account in either year.
Shares granted to employees
On 1 May 2004, the Group changed its accounting policy in respect of
shares granted to employees, in accordance with Urgent Issues Task
Force Abstract 17 (revised). A prior year adjustment has been made
to reflect this change in accounting policy. The impact of this
change is to increase administrative expenses by £141,000 and reduce
profit after taxation by £141,000 for the year ended 30 April 2004.
There is no impact on the profit and loss account reserve as at 30
April 2004. Within the consolidated cash flow statement, the change
in accounting policy has caused a reduction in Group operating
profit of £141,000. There is no impact on the net cash inflow from
operating activities for the year ended 30 April 2004. The impact of
the change in accounting policy in the current year is to increase
administrative expenses by £191,000 and decrease profit after
taxation by £191,000. There is no impact on the profit and loss
account reserve as at 30 April 2005. Within the consolidated cash
flow statement, the Group operating profit is reduced by £191,000.
There is no impact on the net cash inflow from operating activities
for the year ended 30 April 2005.
4. Acquisitions
Furgonetas de Alquiler SA ('Fualsa')
On 16 July 2002, the Group acquired a 40% share in Fualsa, a company
registered in Spain, for a cash consideration of £10,170,000, including
goodwill of £4,726,000. In the year to 30 April 2004, this investment
was accounted for as a joint venture.
On 3 May 2004, the Group exercised its option to acquire a further 40%
of the issued share capital of Fualsa for a consideration of £15,143,000
under the share purchase agreement. On the same date, the Group also
exercised its option to acquire the final 20% of the issued share
capital of Fualsa. The consideration for this exercise is deferred until
May 2006 and will be dependent upon the profit after tax of Fualsa for
the calendar years 2004 and 2005. With effect from May 2004, Fualsa has
been accounted for as a subsidiary undertaking and in accordance with
acquisition accounting principles.
£000
Book value 25,433
Provisional fair value adjustment 2,578
---------
Fair Value 28,011
---------
Fair value of 60% interest in net assets
acquired 16,807
Goodwill 7,395
---------
Acquisition cost (including expenses) 24,202
=========
Fair value of consideration:
Cash 15,143
Deferred consideration 9,059
---------
24,202
=========
Cash payment made 15,143
Cash equivalents with subsidiary undertaking
acquired (90)
---------
Cash outflow in year on acquisition of Fualsa 15,053
=========
The total goodwill of £12,121,000, arising on this acquisition,
comprises £4,726,000 relating to the initial 40% share and £7,395,000
relating to the 60% share of Fualsa. This is being amortised over a 20
year period from July 2002. The deferred consideration is included
within creditors falling due after more than one year.
The fair value adjustment made represents a revaluation of land and
buildings as at 3 May 2004 in line with an open market valuation
performed by professional valuers. The Group revaluation reserve in the
consolidated balance sheet has been credited with 40% of the total
revaluation, relating to the Group's existing interest in Fualsa prior
to 3 May 2004, amounting to £1,031,000.
As noted in the reconciliation of net cash flow to movement in net debt
the deferred consideration in respect of Fualsa is shown as £9,548,000.
This amount represents the actual amount payable of £10,040,000, which
has been discounted by the Group's cost of capital, in accordance with
FRS7. This has resulted in a charge to the profit and loss account of
£489,000 for the year ended 30 April 2005, that has been classified as
interest. Accordingly, an additional amount of £492,000 will be charged
to the profit and loss account on a straight line basis from May 2005
until the expected date that the consideration falls due.
4. Acquisitions (continued)
Foley Self Drive Limited ('Foley')
On 1 August 2004, the Group acquired the entire issued share capital of
Foley for a cash consideration of £3,895,000, including goodwill of
£1,557,000. The goodwill on the acquisition of Foley is capitalised and
written off over a period of five years, being its estimated useful economic
life. The transaction has been accounted for in accordance with acquisition
accounting principles.
£000
Fair value of net assets acquired 2,338
Goodwill 1,557
---------
Acquisition cost (including expenses) 3,895
=========
Fair value of consideration:
Cash 3,895
Bank overdraft with subsidiary undertaking acquired 475
---------
Cash outflow in the year on acquisition of Foley 4,370
=========
F Herriman & Sons Limited ('Daman')
On 30 April 2004, the Group acquired the entire issued share capital of
Daman for a cash consideration of £960,000, including goodwill of £670,000.
During the current year, the Group received £70,000 from the vendor, under
the retention terms of the sale and purchase agreement. There is no impact
on goodwill in the current year.
In all of the above acquisitions, the fair values represent the Directors'
current estimates of the net assets acquired. In accordance with FRS7, the
values attributed may be revised as further information becomes available.
5. Reconciliation of Group operating profit to net cash inflow from operating
activities
2005 2004
As
restated
£000 £000
Group operating profit 75,681 55,605
Depreciation 128,253 98,547
Goodwill amortisation 1,116 71
Loss (profit) on sale of
equipment and other fixed assets 39 (63)
Charge for shares granted to
employees under UITF17 (revised)
(Note 3) 191 141
Increase in stocks (128) (4,922)
(Increase) decrease in debtors (9,340) 1,450
(Decrease) increase in creditors (3,704) 6,374
-------- --------
Net cash inflow from operating
activities 192,108 157,203
======== ========
6. Reconciliation of movements in
shareholders' funds
2005 2004
As
restated
£000 £000
Profit for the financial year 38,494 31,289
Dividends (12,837) (11,064)
-------- --------
25,657 20,225
Issue of Ordinary share capital (net of expenses) 722 16,351
Share options adjustment under UITF17 (revised) 191 -
Revaluation of land and buildings 1,031 -
Increase in own shares held (net) (1,141) -
Foreign exchange differences 1,482 (290)
-------- --------
27,942 36,286
-------- --------
Opening shareholders' funds (as originally stated) 188,307 153,210
Prior year adjustment - UITF38 (Note 3) - (1,330)
Prior year adjustment - UITF17 (revised) (Note 3) - 141
-------- --------
Opening shareholders' funds (as restated) 188,307 152,021
-------- --------
Closing shareholders' funds 216,249 188,307
======== ========
7. Basis of preparation
The results have been prepared on the basis of the accounting policies set out
in the last annual report and accounts, with the exception of the changes in
accounting policies referred to in Note 3 above.
The results for the years to 30 April 2005 and 30 April 2004 and the balance
sheets at those dates are abridged. Full accounts for these periods have been
prepared, on which the Auditors of the Company have made unqualified reports
and which did not include a statement under Section 237 (2) or (3) of the
Companies Act 1985. The Accounts for the year ended 30 April 2004 have been
delivered to the Registrar of Companies.
The Report and Accounts for the year ended 30 April 2005 will be
mailed to shareholders not later than 18 July 2005.
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